Credit Suisse Violates Finra Arbitration Rules, Brokers Say

Credit Suisse’s decision to shutter its Americas wealth management business is turning out to be one of the messiest, and most curious, breakups in wealth management history.

In the latest twist, lawyers representing scores of former CS brokers who are trying to collect millions of dollars of deferred compensation from the Swiss bank are imploring the Financial Industry Regulatory Authority to require the bank to use Finra arbitration to resolve the claims. That is because Credit Suisse Americas has for years compelled employees to take their complaints before the American Arbitration Association or JAMS (formerly, the Judicial Arbitration and Mediation Services) in New York City.

“Finra must enforce its rules that Credit Suisse is brazenly disregarding,” the firm Lax & Neville wrote in a seven-page letter sent March 7 to Finra CEO Richard Ketchum and three other executives. Non-Finra arbitrations “are not only deeply prejudicial to our clients but threaten the integrity of the financial industry’s self-regulatory system,” it said.

The unusual correspondence, which was also signed by lawyers at seven other plaintiffs’ law firms, asks Finra to “act swiftly and decisively to enforce its rules and to impose sanctions against Credit Suisse for failing to submit employment-related disputes to Finra arbitration.”

Finra is reviewing the issues raised, a spokeswoman said, but declined to elaborate.

Lax said in a phone interview on Wednesday that he had not heard back from the industry-financed self-regulatory group but expects a positive response because of growing pressure from brokerage firms to avoid its jurisdiction. A New York State appellate court this year allowed Credit Suisse to avoid Finra arbitration in favor of JAMS, and Morgan Stanley last year sent out a negative consent form requiring brokers to arbitrate disputes in its internal forum, which is overseen by JAMS arbitrators.

“We thought this was a good initial step because FINRA could just stop them,” Lax said of the attempt to rally the regulator to defend its turf against CS. “The potential domino effect” on Finra’s revenue and power could be great, he added.

Credit Suisse’s animus against Finra arbitrations traces back to a case in which a year later by an industry arbitration panel, Lax said.

Copy of letter submitted to Finra

The letter to Finra follows a crazy-quilt round of activity since Credit Suisse told its approximately 250 U.S.-based brokers in October that it was shutting down in the Americas as part of a company-wide restructuring. It urged them to take job offers from Wells Fargo Advisors, saying they would be able to easily move clients to the preferred new employer and also retain their deferred bonus awards.

About two-thirds of the brokers, however, took jobs with UBS Wealth Americas, Morgan Stanley and other competitors, and many have now hired lawyers to compel payment of their back-pay.

Credit Suisse, meanwhile, has brought a raiding complaint against UBS — in a Finra forum. Credit Suisse is believed to have a contingent liability of about $300 million on its books to cover brokers’ deferred compensation.

A Credit Suisse spokeswoman declined to comment on the lawyers’ letter to Finra, the amount of deferred comp claimed by brokers or the raiding claim.

The lawyers’ letter to Finra was earlier reported by The New York Times.